Mild winter melts oil prices

Trading volume was light and that exaggerated the moves lower, analysts said.

U.N. sanctions against Iran that were approved over the weekend could raise concerns about supplies in 2007, though traders so far appear to have shrugged off the continuing dispute over Tehran's nuclear ambitions.

In London, Brent crude futures declined $1.32 to settle at $61.10 a barrel on the ICE Futures exchange.

"The weather is taking a big hold of this market," said Societe Generale commodity strategist Mike Guido, who estimated that consumption of home-heating fuels in the Northeast was as much as 30 percent below normal over the past 45 days.

Before the holiday, prices slipped as brokers weighed slower economic growth and expectations of a mild winter - which would slow demand for heating oil - against OPEC's determination to tighten up worldwide supplies.

The Organization of Petroleum Exporting Countries said earlier this month that it plans to reduce output by an additional 500,000 barrels a day beginning in February. That comes on top of a previously announced cut of 1.2 million barrels per day.

The market also was watching geopolitical developments in Iran, where the government was expected to decide Tuesday whether it would stop cooperating with the International Atomic Energy Association. Iran has vowed to continue uranium enrichment despite U.N. economic sanctions passed Saturday that were aimed at forcing a rollback in its nuclear program.

Nuclear negotiator Ali Larijani was quoted as saying that Iran would begin work at the Natanz nuclear plant on Sunday in response to the sanctions.

Oil-rich Iran insists its nuclear program is intended only to produce fuel for nuclear reactors that would generate electricity, but Washington and some allies suspect its ultimate goal is to create atomic weapons in violation of Iran's treaty commitments.

Cameron Hanover Inc. President Peter Beutel said nuclear tensions could send prices higher, though "it will take some extended cold weather to get there."